A small Raleigh securities firm that caters to foreign customers has agreed to pay $50,000 in fines after being charged by federal regulators with violating the Bank Secrecy Act and failing to comply with an anti-money laundering rule that requires it to verify its customers identities.
The broker-dealer, Pinnacle Capital Markets, neither admitted nor denied the allegations leveled by the Securities and Exchange Commission and the Financial Crimes Enforcement Network, or FinCEN.
“Left unchecked, Pinnacle's business model yields significant money laundering risks,” Robert Khuzami, director of the SEC's enforcement division, said in a prepared statement. “If a broker-dealer provides customers with direct access to the U.S. securities markets, it must comply with the applicable customer identification rules.”
A man who answered the phone at the company's headquarters on Falls of Neuse Road in Road stated.“We have no comment at this time,” then hung up without identifying himself.
Pinnacle, formed in 2002, has failed to verify the identities of all of its customers as it is required to do, according to the SEC.
More than 99 percent of Pinnacle’s customers reside outside the United States, including corporate customers -- foreign banks and brokerage firms whose customers also traded through Pinnacle. Those corporate customers, as well as their customers, or subaccounts, had “unfiltered control” over their securities trades through the company’s direct market access software, according to the SEC. Such software enables customers to implement trades directly without going through a broker’s in-house traders.
The SEC investigation found that, from October 2003 to August 2006, Pinnacle didn’t verify the identities of 34 out of a sample of 55 of its corporate accounts. Nor did it collect or verify identifying information for “the vast majority” of the sub-accounts.
“The evidence revealed that Pinnacle could not form a reasonable belief that it knew the identities of thousands of customers,” FinCEN director James H. Freis Jr. said in a prepared statement. “Any firm operating without effective anti-money laundering and customer identification programs is vulnerable to misuse by clients and sanctions by government authorities.”
Pinnacle has agreed to pay a $25,000 fine to settle the SEC’s allegations, plus another $25,000 to settle allegation by FinCEN.
Pinnacle also agreed to a cease-and-desist order issued by the SEC.
